What's the Market Like Today?
1. Is it still a good market to sell in?
Individuals who want to sell their company in the last quarter of 1999 or early 2000 should experience a market similar to the one that we're seeing today. All of the major players still are pursuing strategic and logical acquisitions in their market.
2. How has the market changed in the past year, and how will it change in the next 1 to 2 years?
The biggest change has been the "mega mergers" that have effectively reduced the acquisition players. Even with new players in the market and large regional companies, sellers have fewer choices than in the past.
Nevertheless, during the next one to two years, you will see more startups as consolidation among the major players creates niches and opportunities. Many of the entrepreneurs that I have talked with feel comfortable competing with the larger companies, and therefore view it as possibly a good time to get into the market.
3. Are prices (multiples) as good, better or worse than in the past?
Occasionally, you hear of really high multiples, which are usually associated with landfills or long-term contracts. But generally, the multiples are as good as they have been in the past. With some of the recent announcements relative to missed earnings and its association with acquisitions, there is a possibility that multiples could start trending down. At a minimum, companies will look more closely at their due diligence results and their assumptions, and not pull the trigger as quickly as they have in the past.
4. Are there as many potential buyers as in the past?
Although there has been some consolidation at the top, with new additions such as Onyx North America and the large regional companies, sellers still will have an ample number of potential buyers.
5. Are there as many potential sellers as in the past?
Yes, there have been a number of start-ups in the past few years, which now are achieving a revenue size where they could be potential sellers. Also, there are other mature companies that, for whatever reason, had not entertained selling in the past but now are seriously considering selling or merging their company within the next six to 12 months.
6. How have the buyers changed?
I do not think buyers particularly have changed. All companies making acquisitions will want to look very closely at the acquisition to insure that the deal is accretive once they are merged. To do this, I think they will be more selective and patient. The due diligence process also will receive significant scrutiny.
The Great Debate: Do I Want to Sell? 1. What are good reasons to sell your business?
Having "good" reasons to sell your business does not necessarily mean that there are "bad" reasons to sell. The decision to sell the business usually is a very emotional, well-thought-out process. To say it was for a "bad" reason would be strictly subjective.
There are several reasons why someone would sell their business. Consider retirement: An owner enters his golden years and everything is tied up in his company. He wants to slow down so that he can do some of the things he enjoys but has not had time for. Even if family members are involved, they can stay with the company as permanent employees after it is acquired.
A second reason closely related to retirement, is estate planning. Does the owner have a plan should misfortune, such as death or strike, occur? Are family members cared for through careful estate planning, which could involve selling the business?
Debt relief might be a third reason to sell. This often is a reason people sell and always should be carefully analyzed. Partners with different objectives is another reason to sell.
Money is the common denominator in all of these reasons. It's not uncommon to sell just for money.
Regardless of the reason, timing is everything. Sellers should consider whether selling at this point in time will optimize the return for themselves and their shareholders. It becomes necessary to sell when the company does not have the money to accomplish its goals. Often, a company will make its decision based on the expectation of increased competition, or on the owner's decision not to take the company to the next stage of development.
2. What are good reasons to keep your business?
If the owner is young and in good health, and has the financial capability to continue to grow the company, he may want to keep the business. The owner also may keep the business to meet personal objectives or goals.
3. Who or what should you consider and/or ask for advice when making this decision?
Companies specialize in helping people make this decision. They take a complete, confidential analysis of the business and then make clear and objective recommendations. Negotiating the best deal and maximizing the possibilities would be next. Along with outside expertise, the seller should consult with his CPA, and maybe even a tax attorney. These professionals will enlighten the seller on tax consequences and make important suggestions on how to structure the deal. Another good resource is someone who has sold a business recently who would be willing to offer advice based on his experience.
4. What makes a business attractive to a buyer?
When a buyer looks at a business for sale, he is trying to determine the positive impacts that acquisition will have on his company. Good quality accounts - long-term, good paying customers who are charged a reasonable price for the service - is a key element in a buyer's mind. The types of services that the company offers also can enhance value. For instance, does the company only offer residential collection, or does it also provide front-end and roll-off service? Does it use its own landfill or does it depend on others for disposal?
Certainly, having quality equipment can enhance value. Are there new trucks? If not, are the trucks well-maintained with good preventative maintenance records?
A good, stable work force always is a positive element and will be a major consideration. Accurate and well-kept employee files will provide evidence of the staff's longevity.
In addition to the employees, the overall expertise of the company - not just in collection, but in other areas such as shop work, equipment installation using today's technology - is important. This part of the evaluation is tempered by the company's size, however.
Revenues and contracts are two of the prime bases for determining a company's price. If a large percentage of a company's revenue is in long-term contracts, then it becomes more attractive to the buyer.
A list of revenue items a buyer would want to see are:
* Monthly billings;
* A customer list;
* Municipal contracts; and
* Aged receivables report.
As part of the selling process, the buyer will conduct an extensive examination of a company. If the seller has not kept good records, the process will go slowly and the buyer may decide to terminate the transaction if he loses confidence in the financial and other business records, which support the purchase price.
The buyer is looking for the acquisition to make a positive impact to the buyer's stockholders. In other words, will the stockholders benefit by making the acquisition? A company that fits into the buyer's strategic plan is very attractive.
5. What makes a business unattractive to a buyer?
When acquiring a company, the buyer basically is buying a customer base. If the customer base is short-term with a poor payment history, then it's less appealing than long-term customers. Pricing is very important because it directly affects the company's profitability.
A bad reputation for service is another unattractive element. It is much easier for the buyer to maintain good service than to try and reverse years of poor service.
Environmental issues also can make a business unattractive. A poorly maintained yard and shop could be hazardous as well as costly to clean up. An environmental assessment by a reputable engineer probably would be money well spent.
6. What are negative factors in a business that appear to make it less attractive, but really won't significantly affect the buyer?
A large debt load could be a negative to the seller and not necessarily to the buyer. Leases, too, are similar. Some agreements will penalize you if you break the lease early. This burden will fall on the seller and probably not affect the buyer.
Any excess amount of overhead, in terms of people and equipment, as compared to the amount of revenue, is a negative to the seller, but not necessarily the buyer. An owner should investigate other companies, even outside of his market area, to compare their overhead to revenue.
You've Decided to Sell: What's Next?
1. How do I find prospective buyers?
Prospective buyers can be identified several ways:
First, look at the competitors in your market. Which ones would be a natural fit for your operation?
Prospective buyers probably have found you. With as much acquisition activity as we have had in our industry over the past few years, more than likely you have been identified and contacted by multiple buyers.
You also could use a merger and acquisition (M&A) consulting group. The principals at many M&A consultant groups have been in the waste business for a number of years, and can assist in packaging your company for sale. They can help you determine what is important and what is not, and guide you throughout the entire process.
2. What will be asked of me by a prospective buyer? [See "Nine Reasons a Business is Attractive to a Buyer" on page 64]
At the beginning of the process, normally the buyer and seller exchange a confidentiality agreement, which protects the seller on any information he provides to the potential buyer. Confidentiality agreements can vary, so you need to read them carefully to insure you understand what you are signing. One item to look for is: do they contain a "no-shop" provision which would prevent you from talking to any other potential buyers, and if so, how long is it in effect?
"No-shop" language is common in confidentiality agreements. It assures the buyer that you are serious about selling your company.
3. Which records should I be prepared to show?
After the confidentiality agreement has been signed, the potential buyer will request information necessary to establish a value on your company. Customarily, they are looking for financial statements for the last two or three years, tax returns, annualized revenue, description of types of services provided, landfill information, list of rolling stock, and quantity and description of containers. Obviously, this information can vary depending on the exact nature of the company.
4. What type of advice should I seek?
Whether this is your first time or you have sold in the past, it is difficult to know all aspects of the transaction. You should know from the very start who you will consult with at the various stages of the sale. For example, lawyers will be needed to review agreements, accountants will be needed to work with you on the structure of the deal depending on your particular tax situation, and again, an M&A consulting group, with years of experience in facilitating acquisitions, could be invaluable.
5. How do I know when the deal is "right?"
You've negotiated with a local competitor, a hauler has presented an offer to you, or you've used an M&A group to find you some prospective buyers. You now have an offer which appears to be the number you were looking for. Keep in mind, it's not always what you get but rather what you get to keep. You now need to go to work with the advisory group with which you have been consulting to review reps and warranties, hold back clauses, tax implications, revenue reps and a whole series of items that could ultimately have an impact on your selling price. When you are satisfied with all the details, then you will know that the deal is "right."
6. How important is the buyer's current state of affairs?
The current state of affairs of the buyer is important and something that should always be considered, regardless of who the buyer is. The structure of the deal is the key. If it's all cash and you are receiving the majority of it at closing, your risk is minimized. If, on the other hand, you are taking a large amount of stock or some other method, obviously you want to be sure that you understand the specifics and get advice from your accountants and attorneys as to any possible exposure or downside.
7. What are the advantages and disadvantages of cash vs. stock?
There are a number of ways for the purchase price to be paid to the seller. The best form for you might be the worst for another seller. Throughout the process of working with your accountants and financial advisors, you should be discussing deal structure and what works best for your situation. Cash is the most risk-free form of payment; however, have your accountants review this method very carefully to make sure that there are no adverse tax consequences that you could avoid by using another form of payment.
Stock is a very popular method currently used in the industry. When considering a stock deal, be sure that you understand any restrictions on your stock, how the stock is valued, and if it will change with the market at closing, or if it is a fixed amount of shares. Both methods have pros and cons, and you need to make sure that you understand the specifics.
In addition to purchase price and payment form, the structure of the deal can vary from an asset purchase, where the buying company just purchases the assets; to a stock purchase where they purchase all of the stock of the corporation; or a merger of the two companies. Often, what is best for the seller is not always best for the buyer. Through the negotiation process, these issues must be resolved.
8. What are additional perks, such as keeping former staff/family employed?
It is not unusual for sellers to negotiate positions for current staff/family members. Often buyers value the current employees and want to keep them and the family members, especially in new markets. In other markets where the buyer is tucking a company into an existing operation, being required to keep former staff and/or family members could drive up their overhead and make it difficult to proceed with the acquisition.
9. What elements are often unaddressed in the contract, such as who owns the furniture?
The Letter of Intent (LOI) will follow the Confidentiality Agreement, and usually outlines the basic business points of the deal. It normally will talk about structure, i.e. asset purchase, stock purchase, etc., price and anticipated closing date. The Definitive Agreement or Purchase Agreement, which follows the signing of an LOI and usually due diligence, is more specific and includes all reps and warranties. The deal's structure itself often has an impact on who owns or gets what.
For example, in an asset purchase, the buyer is purchasing only assets, so in their offer they will spell out those assets which they intend to purchase. With a stock purchase, the buyer is purchasing all the company's stock, and therefore, would expect to get the company mostly intact. There are certainly variations, but this is the general concept.
10. How long should the process take?
The length of this process can vary depending on the deal's complexity and how eager both buyer and seller are to complete it. It also depends on what you consider the beginning of the process. If the process begins when the Letter of Intent is signed, then ordinarily it can be closed in 60 to 90 days, unless there are extenuating circumstances like the necessity of filing a Hart-Scott-Rodino form, or get contracts assigned, etc.
11. How do I determine my company's value?
If you have gone through the process already described, you should have a good indication of the fair market value of your company. In addition, sellers usually have received an offer and have some concept of how the price was reached.
Once you understand that, as you continue to grow, you can apply the same formulas to your current revenue and get a good "ballpark idea" of where you are. Also, researching the sales of other companies can assist you. However, you must keep in mind that no two companies are identical and many variables will have an impact on the sale price.
* Location - i.e., rural vs. metropolitan market;
* Full service - i.e., front-load, roll-off, residential, etc., or basically just a one-service company.
* Revenue makeup - i.e. permanent accounts under contract vs. temporary, with no contract.
These factors, plus many more, can have an impact on the value of your company, and once you understand them, you can develop a plan to make your company more valuable. WA
Steve Goode is president of Marketing Resource Group (MRG), Raleigh, N.C. Jim Roberts is senior vice president of MRG. Michael Fickes, who compiled the updates on the publicly held private companies, is Waste Age's Business Editor.
After swallowing $4 billion Houston-based Browning-Ferris Industries (BFI), Allied Waste Industries Inc., Scottsdale, Ariz., emerged during 1999 as the new No. 2 waste management company in the nation.
Allied Waste's pro forma for the 12 months ended March 31, 1999, estimated revenues for the combined company at $5.4 billion, a figure which excludes expected divestitures of BFI assets in medical waste, Canadian solid waste and several other operations.
Company officials caution that this number may change by the end of 1999, in light of growth from internal operations and further acquisitions. In discussions with investment banker Donaldson, Lufkin & Jenrette, Allied officials pointed to estimated 2000 revenues of $6.5 billion as a more reliable number. Growth from rising internal sales as well as tuck-in acquisitions will fuel this increase from the March 1999 pro forma revenue number, which simply adds 1998 revenues for both companies.
In terms of operations, Allied's acquisition of BFI produced a behemoth. Compared to Allied's 1998 annual report, the new company boasts 362 collection companies, up from 130; 166 landfills, up from 76; 164 transfer stations, up from 68; and 129 recycling facilities, up from 22. Company operations serve 9.9 million customers in 46 states and 64 distinct geographical markets.
These figures, too, will bounce around over the next 24 months or so, as the company fulfills its tuck-in acquisition goals for 1999 ($400 million), 2000 ($300 million) and 2001 ($300 million), completes its divestiture plans, and conducts planned asset swaps.
Historically, Allied has targeted acquisitions that allow for swift vertical integration. Between 1997 and 1998, for example, the company's internalization rate, a measure of the success of vertical integration, rose from 60 percent to 68 percent.
Company officials expect the initial effect of the BFI acquisition to dilute this rate somewhat. According to Allied, however, as the weight of BFI's assets settles over the next three years, the company's internalization rate may rise to 75 percent. A revised acquisition strategy will contribute to this.
Acquisitions will become a contributor to the overall growth of the company, not the driver of overall growth, according to a company spokeswoman. "Our focus will be to look for pieces within each of our 36 markets that will make our business plan work. Allied will make few, if any, new market entries over the next two years.
"We intend to delever the company and to maximize return on assets by increasing route density and landfill volume and through strategic acquisitions, tuck-ins, and asset swaps," she continues. "We believe over a very short period of time that we can mold the new asset base to comply with our operating philosophy."
* Confidentiality Agreement - Seller and buyer sign Confidentiality Agreement protecting seller's information.
* Letter of Intent (LOI) - Buyer presents LOI to seller based on assumptions made from information provided.
* Pre-Closing Due Diligence - Buyer performs environmental and financial due diligence to verify information and assumptions.
* Definitive Agreement/Closing - Buyer and Seller sign all necessary documents and acquisition/merger becomes effective.
* Post Closure Hold Back Settlement - Buyer and Seller tie up any loose ends and adjustments to the final purchase price (90-day hold back periods are customary).
Casella Waste Systems Inc., Rutland, Vt., also asserted itself during the 1999 calendar year, adding $32 million in finished acquisitions through the third quarter and preparing to complete a major acquisition of Guttenberg, N.J.-based KTI Inc. before the end of the year.
The company's 1999 annual report, dated April 30, 1999, shows annual revenues of $173 million, up from $118 million the prior year.
On the strength of tuck-in acquisitions made between May and September 1999, the company's revenue run rate rose to $205 million.
Not counting KTI, Casella's operations as of Sept. 30, 1999, included 39 collection divisions, 50 transfer stations, seven landfills, and 15 recycling facilities - all serving a customer base of 500,000 people in the northeastern quadrant of the United States. These operations center in Vermont, New Hampshire, Maine, northern Massachusetts, upstate New York and northern Pennsylvania.
Casella's long-time strategy has been to dominate secondary, non-urban markets in the Northeast with integrated collection, transfer, recycling and disposal platforms. Under this strategy, Casella disposes of about 55 percent of the waste it collects through its own facilities.
Announced in Jan. 1999, the acquisition of KTI has followed a difficult path. In April, Casella decided to terminate the merger agreement, citing breaches of the agreement by KTI. A month later, Casella revived the process, altering the purchase terms. Nevertheless, the merger, which was expected to close in October, will add significantly to Casella's assets.
KTI is an integrated solid waste company operating 51 facilities in 21 states and Canada. The company's four divisions include waste-to-energy, commercial recycling, residential recycling and finished products. With $300 million in revenue, KTI will more than double Casella's size.
Company officials estimate the run rate of the new Casella will approach $505 million by April 30 of next year, and rise to $601 million over the next 12 months.
"Casella Waste Systems' focused strategy and disciplined operations combined with KTI's assets, particularly our disposal facilities, will strengthen the merged company's position as a leading provider of solid waste services in the Northeast," says Ros Pirasteh, KTI chairman.
From Casella's point of view, the KTI acquisition creates the potential for expanded market reach. "There is significant overlap between KTI and Casella in the Northeast," says Joseph Fusco, Casella's vice president of communications. "KTI will allow us to continue consolidating existing markets in the Northeast. It also will enable us to expand contiguously into other areas of the region.
Down the road, KTI will provide opportunities for us to expand beyond the northeast, not necessarily contiguously, but by building on opportunities related to KTI assets. The idea is to take our proven strategy and to look for opportunities in other markets."
Republic Services Inc., Fort Lauderdale, Fla., the third largest waste management company in the country, continues to grow through acquisitions and has positioned itself for greater internal growth in the future.
Founded in 1995, the company reported revenues of $1.13 billion in calendar year 1997 and revenues of $1.37 billion in 1998. Built primarily by acquisition, Republic reported an 8 percent increase from internal growth during the first calendar quarter of 1999.
"The key to our strong financial performance is our solid internal growth," says James E. O'Connor, CEO. Six percent of that internal growth came from increased volumes, while 2 percent was attributable to price hikes, he says.
The company's presence in high-growth markets throughout the Sunbelt, including Florida, Georgia, Nevada, Southern California and Texas, as well as in other domestic markets that have experienced higher than average population growth in recent years supports this internal growth strategy. The prospectus of a Republic debt offering dated May 19, 1999, contends that the company's presence in these markets positions Republic for internal growth at rates generally higher than the industry's overall growth rate.
The prospectus also enumerates Republic's current operational capabilities: 139 collection companies operating in 26 states; 76 transfer stations; 58 landfills; and an unspecified number of recycling facilities.
It seems that Republic's internalization rate continues to lag that of other major public waste management companies. During 1998, the company disposed of approximately 40 percent of the total volume of waste collected at its own landfills. But over the past two years, Republic's acquisition strategy seems to be designed to address this deficiency.
According to the company's 1998 annual report, Republic's assets in 1995 were concentrated largely in collections. Since then, acquisitions have focused on balancing collections and disposal capability, an efficiency move the company hopes will lower costs and increase earnings.
Vertical integration efforts continued during 1999. In March, the company completed a $438 million acquisition of certain Waste Management assets, including 16 landfills, 11 transfer stations and more than 130 commercial collection routes.
In July, Republic made two agreements with Allied Waste to buy and sell assets located in seven markets around the country. Under one of these agreements, Republic will purchase four landfills, 11 transfer stations, and some container hauling assets. Under the second agreement, Republic will sell waste services assets located across the country to Allied, while buying other Allied assets, which it will pay for with approximately $230 million in cash.
"These acquisitions will significantly increase our asset integration in several markets, and we're particularly excited about expanding our market share in Chicago, the third largest metropolitan market in the country," O'Connor says. "These transactions are consistent with our strategy for growth in our existing markets and will improve our market position."
Republic's dealings with other major waste management companies in both acquisitions and asset swaps may become more prevalent among large waste management companies, as they seek to "rationalize" or improve the vertical integration of the individual markets where they operate.
In June of this year, Paris-based Vivendi purchased Superior Services Inc., Milwaukee, for nearly $1 billion. The purchase was carried out by Vivendi's North American waste management subsidiary in Miami, Fla., Onyx-North America.
At the time of the acquisition, Superior's revenues were approximately $400 million per year. The company owned 49 collection operations, 20 transfer stations, 23 landfills and 15 recycling plants, and served 750,000 customers in 12 Midwestern states.
Acquisition activity through June of this year added annualized revenues of approximately $51 million. Overall, the company's internalization rate increased to 62 percent from 58 percent during the first calendar quarter.
As with other waste management companies, Superior has begun to focus more on internal growth. During the first quarter of the year, the company reported internal sales growth of approximately 6 percent, including 2 percent from price increases. Superior officials say that this growth was offset by as much as 3 percent because of a decline in seasonal project work in its special services group. For the rest of 1999, officials believe that internal growth will quicken as a result of increased volume at company landfills and price increases that took effect in March and April 1999.
Such figures may become difficult to total as Superior takes up its role as a solid waste management subsidiary. Onyx-North America will report on its overall business, but has no obligation to break out Superior's numbers. Nevertheless, Superior will move forward with larger acquisition capabilities thanks to its new-found Onyx resources.
"Our acquisition strategy has not changed substantially from what it was," says George K. Farr, Superior's chief financial officer. "We always have aimed to build markets through a hub-and-spoke approach, with the hubs being landfills and the spokes being collection operations. This has been a successful strategy for us since we began in 1993. Moving forward, we may take advantage of collection operation acquisitions in disposal neutral markets, where disposal costs are controlled by competition."
Will Superior increase the size and pace of acquisitions?
"We have the flexibility and the infrastructure to handle larger deals, now," Farr says, "but our bread and butter has always been smaller companies that we can tuck into our operations. We also may expand more rapidly over the next year into new markets because of the financial backing we receive from our new parent."
According to Farr, Onyx-North America's resources also may begin to help build Superior's integrated services division, a business area that few, if any, of the large waste management companies offer.
"Our integrated services division handles project-based activity that provides special waste streams to our landfills," Farr says. "This includes remediation work, industrial cleaning services, bio-solids work and other ancillary businesses that we have integrated into our solid waste operations. We may focus more on this area because Vivendi has an interest in expanding the scope of their business in that area."
Two years ago, Waste Connections Inc., Roseville, Calif., had no employees and no revenues. By the beginning of 1998, the company had announced and begun to implement an aggressive strategy to dominate secondary, non-urban, solid waste markets west of the Mississippi River. Targets included towns and cities between 20,000 and 100,000 in population.
When that year had ended, Waste Connections had logged $54 million in revenue and pointed to an annualized run rate of $115 million. Through September 1999, the company doubled that run rate to $240 million on the strength of 41 acquisitions.
Three of those acquisitions involved solid, mid-sized waste management companies. In the first quarter of the year, the company bought the Murrey's Companies of Tacoma, Wash., which added annualized revenues of $35 million to the company's books. In the second quarter, the company purchased the Columbia Resource Corp. of Vancouver, Wash., and the Finley Buttes Landfill in eastern Oregon from a common owner, adding another $23 million in annualized revenues. Then came the El Paso Disposal Companies in El Paso, Texas, which generate approximately $38 million in revenues per year.
Entering the fourth quarter of 1999, Waste Connections owns 48 collection operations, 16 landfills, 21 transfer stations and eight recycling facilities. These facilities service a half million customers, which break down as: 48 percent residential, 42 percent commercial, 7 percent industrial and construction, and 3 percent other.
The company's 1999 acquisitions not only doubled the revenue run rate, but also brought a higher degree of vertical integration to Waste Connections' operations. At the beginning of the year, the company disposed of only 11 percent of its collections at company facilities. By the third quarter, acquisitions had raised the internalization rate to between 35 percent and 40 percent.
In addition, a number of acquisitions enabled the company to enter new markets in Kansas, Nebraska, New Mexico, South Dakota, Utah and Washington. Of the 18 states west of the Mississippi River, Waste Connections now operates in 14 - all except Arizona, Colorado, Montana and Nevada.
According to Ron Mittelstaedt, president and CEO, Waste Connections' financial position will allow $150 million in acquisitions through 2000. The strategy behind those acquisitions will aim to further integrate existing markets and to enter new markets in Colorado and Montana.
"We are looking seriously at Colorado and Montana," Mittelstaedt says. "These states would be our next likely steps in terms of new markets. We don't see ourselves in Arizona or Nevada. There just isn't a lot of opportunity for us there."
In Nevada, the markets in Reno and Las Vegas already have been consolidated, he says. In Arizona, Tucson and Flagstaff markets also are substantially consolidated, and "Phoenix is an urban market that doesn't fall into our strategic target range."
* Financials - Past 6 months and year to date, current year
- year end for the past two (2) years; and
- tax returns for the past two (2) years.
* Revenue - Revenue for landfill and for each type of service provided, i.e. roll-off, front-load, residential, etc.
* Assets - List of all assets that are part of the deal (land, property, vehicles, containers, equipment, etc. leased or owned). Information should include:
1. A detailed description of land and buildings,
2. Year and model of trucks and type of body, and
3. Quantities and descriptions of containers and compactors.
* Employees - Total payroll for all employees who would remain with the buyer after the acquisition. Information should include the position of each employee, i.e. overhead, front-load driver, residential driver, mechanic, etc.
Waste Industries Inc., Raleigh, N.C., entered 1999 on the strength of approximately $170 million in revenues from waste management operations centered in the southeastern region of the country. The company operates primarily in North Carolina, South Carolina, Virginia, Tennessee, Mississippi, Alabama and Georgia, serving approximately 300,000 customers.
Beginning in 1999, the company's assets included 35 branch collection locations, 20 transfer stations, more than 100 county convenience drop-off centers, seven recycling facilities and three landfills.
According to CEO Lonnie C. Poole Jr., calendar year 1998 produced substantial growth for Waste Industries. He says the company grew its customer base from 114,000 to more than 300,000 by adding 10 new branches, eight new transfer stations and two landfills.
During 1998, Waste Industries executed a balanced growth strategy with 21 percent of its revenue growth coming from acquisitions of 13 companies, 11 percent through internal growth, and about 1 percent from price increases, according to Poole.
During the first half of 1999, the company carried out nearly a dozen acquisitions that have increased its range of collection operations and added two new landfills. Pro forma results of the effects of these acquisitions were not available at press time.
1. Good quality accounts that are long-term and pay well.
2. Multi-service company.
3. Quality assets (equipment).
4. Good maintenance records.
5. Stable work force with accurate and complete employee files.
6. High level of expertise and technology.
7. Good pricing/revenue.
8. Long term contracts.
9. Strategic fit.
The new Waste Management Inc., Houston, struggled through a difficult 1999, as savings of $800 million expected to follow last year's merger failed to materialize and led to disappointing earnings.
Making matters worse, the company's highly regarded chairman and CEO John E. Drury fell seriously ill during the year. And, No. 2 executive Rodney R. Proto raised questions of propriety by selling stock prior to a company announcement lowering second quarter earning projections. When both executives left the company in mid-August, the company's board of directors elected Ralph V. Whitworth chairman and Robert S. Miller president. Miller also serves as interim CEO while the board searches for a permanent replacement.
While the luster of the new company faded during 1999, Waste Management remains the industry's powerhouse. At mid-year, the company employed 68,000 people, operated 41,000 collection and transfer vehicles, and served 26 million residential customers and 1.7 million commercial and industrial accounts.
Its 700-plus collection operations fed solid waste to a network of 342 owned or operated landfills, and more than 150 materials recovery facilities through 325 transfer stations. And the company's operational mix has raised its internalization rate from 61.7 percent at the end of 1998 to the mid 60-percent range by August of this year.
According to Bill Plunkett, Waste Management spokesman, revenues will rise modestly in 1999. Last year's revenues were approximately $12.7 billion.
Going forward, Waste Management's board has approved a new strategic plan to refocus company operations on its most profitable North American solid waste assets. Under its plan, Waste Management intends to:
* Dispose of non-strategic and underperforming assets, including some or all international holdings, substantially all of its non-core assets, and up to 10 percent (in terms of revenue) of North American solid waste assets;
* Maintain the company's long-term investment grade characteristics while deploying disposition proceeds to debt repayment, repurchases of shares and selected tuck-in acquisitions;
* Bring more discipline and accountability to the company without altering its decentralized business model;
* Restore a disciplined capital allocation philosophy that focuses on profits as opposed to growth; and
* Give employees the tools they need to do their jobs, including updated and more efficient information systems.
The company's acquisition strategy will de-emphasize major acquisitions and seek tuck-ins to enhance its internalization rate and improve financial performance.
But a pure tuck-in strategy does not reflect lower ambitions related to a lower credit rating, Plunkett says.
"Waste Management is by far the leader in the industry in North America," he says. "The company owns an exquisite set of assets. Financially, it is the strongest company in the industry. The merger was an enormous undertaking. While we have made significant progress toward realizing the synergies made possible by the merger, we realize that there is more to do. We need to improve our systems capabilities and other infrastructure to make the most of what we have. But none of our troubles should overshadow the fact that we are the strongest solid waste company in the world."